Section 80EEA Deduction: Interest on loan taken for certain house property

Section 80EEA: Deduction in respect of interest on loan taken for certain house property- Article explains Overview of Section 80EEA, Eligibility conditions to be eligible for deduction under 80EEA, Calculation of Deduction under Section 80EEA with Examples and Taxability of the deduction under Section 80EEA.

Overview of Section 80EEA

The section 80EEA of income tax act 1961 as amended for A.Y. 2023-24 (hereinafter referred as 80EEA) provides incentive to first time home buyers by giving income tax benefit. Under this section, individual who have taken loan from a financial institution for purchase or construction of residential house property can claim deduction of Rs. 1,50,000 along with the deductions available under section 80C, 80CCC and 80CCD, on interest payable on the loan taken for the purchase or construction of the house property. This deduction is applicable for the assessment year 2023-24 and is available over and above the existing deduction under Section 24 of the same act, available for interest portion on home loan.

Eligibility conditions to be eligible for deduction under 80EEA

The following conditions must be satisfied by individuals to be eligible for deduction under 80EEA :

1. The individual taxpayer should be a resident of India.

2. The loan should have been taken from any banking companies which are notified by the Central Government and other financial institutions such as finance companies, housing finance companies.

3. The loan should have been taken for the purpose of purchase or construction of the residential house property either in joint or single name.

4. The loan should have been sanctioned between 1st April 2020 to 31st March 2023.

5. The loan should not have exceeded Rs. 35,00,000.

6. The loan should not have been taken to purchase a residential property which is already owned by the taxpayer.

7. The taxpayer should not have acquired another residential property on or before the date of sanction of the loan.

8. The taxpayer should not have claimed deduction under any other section for the same.

Calculation of Deduction under Section 80EEA with Examples

The deductions under 80EEA are available over and above existing deductions under section 24. The deduction is limited to Rs. 1,50,000 or the interest payable in the assessment year, whichever is less. The interest payable should be lesser than the loan amount. It should also be noted that while calculating deduction, any other deduction claimed regarding the repayment of loan such as the principal portion of repayment under the existing deductions under section 80C, 80CCD, etc., should be excluded.

For example, if an assessee has availed a loan of Rs. 20,00,000 and has paid Rs. 1,20,000 as interest during the financial year 2020-21, and has further claimed deduction under section 80C of Rs. 50,000 towards the principal repayment, he is eligible for deduction under section 80EEA of Rs. 70,000 (1,50,000-80,000).

Taxability of the deduction under Section 80EEA

Deduction under 80EEA is allowed in computing the total income of the assessee for the applicable A.Y. 2023-24. Deduction shall be allowed from the Gross Total Income which includes other sources of income other than salary i.e. self-employed, House property, capital gains etc. The taxpayer is not allowed to set off the loss arising from other sources.

Example

Mr. X, a resident of India, has taken a loan of Rs. 25,00,000 from a bank notified by the Central Government for the purpose of purchase of a residential house property in the F.Y. 2020-21 and paid Rs. 1,50,000 towards interest. He is eligible for deduction of Rs. 1,50,000 under 80EEA. He has also earned rental income from his other house property of Rs. 1,00,000 and long term capital gains of Rs. 5,00,000 during the F.Y. 2021-22. He can claim deduction of Rs. 1,50,000 under 80EEA and the balance amount will be taxable.

Conclusion

Section 80EEA provides incentive to first time home buyers by giving income tax benefit. Eligibility conditions and deductions available under section are discussed above. Proper documentation and property declaration may be necessary to avoid any issues in claiming this deduction.